1. Economics: Trade-Offs and Choice
By Ben Quick

2. What is a Trade-Off?
$ Trade-Off – Exchanging one thing for the use of another
Opportunity Cost – The value of the next best alternative that had to be given up for the alternative that was chosen.
(your number 2 choice)

3. Opportunity Cost
The Opportunity cost principle states the cost of one good in terms of the next best alternative
For Example, a gardener decides to grow carrots on his land. The O.C. of his carrot harvest is the alternative crop that could have grown instead. (ex; cucumbers)

4. Opportunity Cost (cont)
Here are some other examples of O.C.
Group
Decision
Individual
Should I buy shoes or pants?
School
Should we build a music room or tennis courts?
County
Should we increase police pay or pensions?

5. O.C. (Cont)
With your neighbor (elbow partner), create a list of all the opportunity costs that you will incur when you attend college.

6. O.C. (cont)
The cost of books, tuition, and supplies (the costs of room and board (food) only appear if these costs differ from the levels that would have been paid in your next-best alternative)
Foregone Income
Psychological costs – stress, anxiety, etc.. Associated with studying, worrying about grades, etc..

7. Rational Decision Making
Requires you to weigh the total cost and total benefit of a decision.
If the total Benefit is greater than the total cost, you do it.
If the total Cost is greater than the total benefit, you do not do it

8. Questions?